Relative Profitability of Acute Care Hospital Services, 2d edition

Description. This research note categorizes acute care hospitals services as relatively profitable, relatively unprofitable, variably profitable, or uncertain. It updates “Research Note: Relative Profitability of Acute Hospital Services,” an online exhibit to a previous paper. Scholars in hundreds of studies have relied upon the previous work as an authoritative source of profitability designations (See, e.g. Barro et al., 2006, Bazzoli et al., 2012, Chang and Jacobson, 2017). Given the age of that note, it is time to provide an update. Whether a service is likely to be profitable for any individual hospital depends on many circumstances, such as the patient population most likely to receive it, market conditions, insurer and government policies at the time the service is adopted and provided, the management priorities and skills of the hospital executives, and a host of other factors (Bai and Anderson, 2016). Consequently, the warning that appeared in the previous note remains valid: “Despite the rigorous nature of this service review, a note of caution is necessary. Categorizing services by profitability is difficult. Profitability is not an inherent attribute of medical services but depends on institutional-specific factors such as management skills or accounting conventions like cost allocation. Within a single hospital, costs and charges differ, and discounts vary by individual payer. Further, there are joint service costs that blur the profitability picture” (Horwitz, 2005b). To that warning we add a caveat that we did not include previously but that applies to both research notes: Relative profitability designations do not mean that a service is, in fact, profitable for hospitals, even most of the time. This note offers a simple categorization of relative profitability, not absolute profitability. Consequently, this note attempts to suggest what services a typical administrator, faced with the decision of whether to adopt or discontinue a service, would reasonably consider to be relatively profitable or not. The services reported in this document address the major service areas offered by full-service, acute care hospitals. They are all represented, in some form, in the American Hospital Association Annual Surveys. In addition to medical services, we newly include profitability designations for the community outreach services listed in the AHA surveys. Because these services are not medical services, we have listed them separately at the end of this Research Note. Methods and Sources. The categorizations in this research note are based on many sources. First, they derive from a review of peer-reviewed public health, health policy, medical, business, finance, statistics, sociology, and public policy research relating to profitability of medical services. Second, we reviewed Medicare reimbursement policies as reported by the Medicare Payment Advisory Commission (MedPac) and Prospective Payment Assessment Commission (ProPAC). Third, the designations are supported by a review of trade publications, business magazines, and newspaper articles. Although this last set of sources does not always report scientifically rigorous information, they are helpful in demonstrating what an administrator is likely to understand about the profitability of potential services. Fourth, in some cases, an analysis of the socioeconomic or insurance statuses of patients likely to demand various services supports the case that a service was relatively profitable or relatively unprofitable. This research took place over several years (2017-2021). Researchers, under the close supervision of and ongoing review by a law librarian (Lynn McClelland MPH, JD, MLIS, Reference Librarian) and Horwitz, performed initial searches on each service, made recommendations regarding profitability designation. Researchers included five UCLA law students with health law and policy expertise and research training, an experienced health lawyer and UCLA LLM graduate, and MPH students at Vanderbilt and the University of Minnesota. Horwitz and Nikpay reviewed the document multiple times, and Horwitz, Nichols, and Nikpay determined final decisions on coding by consensus after discussing the evidence.